Enables Robinhood to purchase margin stocks
Robinhood share: A fintech star wants to go public
Young adults (millennials) love the Robinhood trading app. The reason: US stocks and various crypto currencies can be traded free of charge via the smartphone application.
The company behind it Robinhood Markets plans to raise US $ 200 million in a further financing round, according to US media reports. A later IPO of Robinhood is not ruled out either.
Robinhood has been a hot candidate for an IPO for months, and the start-up is already valued at more than US $ 7 billion. But what is behind the new shooting star in the fintech industry?
Robinhood share - what are the advantages of going public?
Robinhood Markets was founded in 2013 by Vladimir Tenev and Baiju Bhatt. Like so many high-tech companies, the company is based in Menlo Park, California, in Silicon Valley.
Robinhood Markets operates out of 3 business units: Robinhood Financial, Robinhood Crypto and Robinhood Securities. The subsidiary Robinhood Financial is behind the mobile application of the same name for the smartphone (Android and iOS). The app enables investors to trade more than 5,000 US stocks and exchange-traded funds (ETFs) via their smartphone - free of charge.
This is possible because Robinhood has developed its own clearing system (settlement and value date) and is therefore no longer dependent on third-party providers. The number of users of the Robinhood app has recently grown massively thanks to the offer of being able to trade US shares via smartphone free of charge - to over 6 million customers in 2018.
US users can also invest in Bitcoin and other cryptocurrencies via Robinhood - also free of charge. All customer deposits (stocks, ETFs, cryptocurrencies, etc.) are insured up to US $ 500,000. Robinhood is also officially registered with the US Securities and Exchange Commission and is also a member of the Financial Industry Regulatory Authority (FINRA).
Robinhood has already raised over $ 500 million in venture capital. Investors include Index Ventures, DST Global, Andreessen Horowitz, Kleiner Perkins, Sequioa and Google's Capital G.
How does Robinhood make its money?
One of Robinhood's primary sources of income is interest that the company collects on its customers' deposits. Robinhood also receives fees when the company lends money to its customers (margin trading via Robinhood Gold).
So far, Robinhood has mainly passed buy and sell orders from its customers (order flow data) to large stock exchanges and market makers (Citadel, Two Sigma, etc.) - but this business model should no longer be so much in the foreground in the future.
On the other hand, the Robinhood Gold subscription service, which costs between US $ 10 and 2,000 per month, has seen strong growth recently. This allows customers to borrow $ 200 to $ 50,000 from the company for interest rates of 5% p.a.
Conclusion: Robinhood is a disruptive financial service provider going public
With its easy-to-use app, Robinhood primarily appeals to young people between the ages of 18 and 35. The company has had great success with this target group in recent years.
If Robinhood can successfully complete the targeted financing round of US $ 200 million, analysts see the fintech star's valuation at around US $ 10 billion.
In the next few years, Robinhood is to be expanded into a full-service financial provider, suggests co-founder and co-boss Baju Bhatt. Robinhood could disrupt the previous financial service landscape with its fee-free business model.
Robinhood was originally supposed to go public in 2019. Robinhood is currently looking for a Chief Financial Officer. If Robinhood does not find what it is looking for, the IPO can be postponed until 2020 and later.
The bottom line is that Robinhood is a fintech company that is going public, which is of particular interest to speculative investors. Investors need to keep in mind that although Robinhood is growing strongly, it is still considered to be in deficit.
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